Integral Diagnostics Limited (IDX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Integral Diagnostics FY '21 Results Call. [Operator Instructions] I would now like to hand the conference over to Dr. Ian Kadish, CEO and Managing Director. Please go ahead.

Thank you, Melanie. My name is Ian Kadish. I'm the CEO and Managing Director of Integral Diagnostics. I'm joined here this morning by Anne Lockwood, who's our Chief Financial and Commercial Officer. It's our privilege this morning to present to you another strong set of results from Integral Diagnostics, thanks to the hard work and efforts of 1,524 doctors and staff across our business during some challenging times. Our vision at IDX is to build a healthier world, and we delivered this by delivering the best health outcome we can for our patients, one patient at a time. We believe in putting our patients first always in demonstrating medical leadership, ensuring that everyone counts, delivering value for our shareholders and for all stakeholders and embracing change in a year that has required us to brace more change than any other. We delivered on our values in financial year '21. We served nearly 800,000 patients referred to us by more than 35,000 referrers. We performed more than 2 million exams, reduced our adverse patient outcomes to less than 0.03% of all exams, and we provided Patient Apps to our practices all across Australia. We also invested $23 million in CapEx to ensure that we continue to provide quality care and improved access, particularly to MRI and CT in the regional areas. And we continue to implement digital and AI technology to enhance our patient and referrer experience. We demonstrated medical leadership through the work of our 237 reporting radiologists, 157 of which are employees of the company. Importantly, 85 of our radiologists are now shareholders in IDX. We launched IDXt, which is IDX' teleradiology reporting platform and which helped us immensely during the initial lockdowns in Melbourne last year with -- IDXt was finding its feet, where we used radiology resources in Victoria that were less utilized to support the additional work we had in Queensland and Western Australia at that time. We executed a joint venture with Medica Group Plc in February of this year. Medica Group is the largest listed U.K. teleradiology business in the U.K. And our joint venture is called MedX. We appointed Dr. Lisa Sorger as our Chief Medical Officer, and we also appointed Dr. Nazar Bokani to the IDX Board. Dr. Bokani has been a Clinical Director of our Western Australian business now for several years. Everyone counted at IDX, all 1,524 employees we have. We reduced lost time injuries last year per million work hours by 5.5%. We developed an IDX leadership program. We've completed a stakeholder survey. We measured our carbon footprint to develop our ESG strategy. And we supported our people during the COVID-19 mandated absences. We also provided Healthcare Hero Awards to employees to recognize those health care heroes on the frontline and the -- on the health care front line and those who also support the frontline. And we created value by increasing our net profit after tax by 25%, increasing our EPS by 14.5%. And we paid and declared a dividend of $0.125 per share, which is a 31% increase over last year. We continued to integrate Imaging Queensland and Ascot Radiology, our 2 most recent acquisitions. And we negotiated the extension of our finance facilities with $407 million committed and a further $105 million in an accordion that has a 5-year term. We have 5,355 shareholders across IDX as of the 30th of June. And we embraced change to manage workflows, personnel and systems to the new normal for COVID-19. We expanded our leadership team with appointment of the Chief Operating Officer Paul McCrow, who has led our Western Australian business for some time, which has been the highest-performing business unit in the group for the last several years, both from a culture as well as an earnings growth perspective. We appointed a group integration and strategy manager. We also appointed a group business development manager. And we monitored and assessed -- continue to monitor and assess and influence the regulatory and market development environment across both Australia and New Zealand. Turning to financial highlights, which are on Page 4 of the investor presentation. We increased NPAT by 36.1% to $31.3 million in F '21. We increased our operating NPAT by 25.3% to $38.1 million. And we increased operating EBITDA by 23.5% to $93.5 million. We also increased our earnings per share by 14.5% to $0.19 per share. We increased operating revenue by 27.3% to $348.8 million and increased our free cash flow by 19.3% to $66.5 million. And we improved our net debt to last 12 months EBITDA by 6.7% to 1.4x. We reacted to COVID-19. We saw business activity across the business impacted during the course of last year. Victoria, in particular, had significant reductions from July to September last year that impacted our revenues. Despite the ongoing lockdowns across -- from October to June across all states, we performed largely in line with pre-COVID expectations for the period. Our net JobKeeper receipts of $6.6 million were utilized to offset the impact of COVID-19 in FY '21 and allowed IDX to retain our highly skilled frontline workforce. IDX voluntarily also repaid $2.9 million in JobKeeper receipts in June of 2021. Importantly, we declared a fully franked final dividend of $0.07 a share, which brings our total for FY '21 to $0.125 a share. This represents a 31.6% increase over the prior year. Turning to industry growth on Page 5 of the investor presentation. Our industry saw a significant downturn as you can see during those first initial waves of COVID, but we have come back strongly off of that lower base. What we're looking at on this graph are 2 lines. Top line represents the disbursements of the revenue to us that Medicare pays for diagnostic imaging scans, and the bottom line represents the number of scans that Medicare pays for. The divergence of the 2 lines in the past 2 years indicates that we're doing more of the high-value scans and less of the basic x-rays and ultrasound. So we're doing more of the CTs and the MRIs as an industry and relatively fewer of x-rays and ultrasounds. And that's why you see the divergence of the 2 lines going into COVID, during COVID and importantly since COVID. And we expect the number of CTs, MRIs and PETs to continue to increase relative to the number of basic x-rays and ultrasounds going forward. I'm now going to hand over to Anne Lockwood, our CFCO, to take us through the financial and regulatory updates.

Thank you, Ian, and good morning, everybody. I'm on Slide 7 of the investor presentation. This is our FY '21 results, and they include the impacts of AASB 16. You'll see in footnote 1, we have provided an outline of what the impacts of AASB 16 are on our EBITDA, EBIT and the net -- NPAT for both FY '21 and what we expect the impacts will be in FY '22. So for those of you that are still getting your head around AASB 16, we've tried to make it as easy and as transparent for you as possible. The FY '21 results delivered $348.8 million of operating revenue, an increase of 27.3%. We delivered operating EBITDA of $93.5 million on a margin of 26.8%, which was a slight decline on prior year of the 27.6%. We delivered an operating NPAT of $38.1 million or 25.3% increase. This is slightly lower than consensus of $38.8 million, which is the average consensus, but this was largely due to the net of tax $2 million repayment to the surplus JobKeeper fund that IDX made in June. Otherwise, the results would have been $40.1 million, and that would have been ahead of consensus. The operating NPAT delivered an operating diluted EPS of $0.19 per share, which is a 14.5% increase on prior year, driving free cash flows of $66.5 million and the cash flow conversion net of replacement CapEx of 89.1%. Our net debt, as Ian pointed out, was $137.4 million and a leverage of 1.4x. Turning the page. We've provided, as we always do, a reconciliation of operating to statutory results. We're always very clear that the transaction and integration costs incurred, $2.4 million, only are those costs incurred by external advisers on M&A activity or integration activity. Our share-based payments are $2.1 million, and that relates to the performance rights under the long-term incentive scheme, the Radiologist Loan Funded Share & Option Plan. And our customer contract amortization of $3.3 million relates to the Ascot Radiology and the Imaging Queensland. And we still have $4.2 million of customer contracts remain to be written off over FY '22. These are noncash items. They're driven from purchase price accounting under AASB 3, the accounting standard. And that's why we called them off as a one-off. Turning to Slide 9. We've delivered consistent growth over the last 5 years, understanding that FY '20 and '21 EBITDA had the uplift of AASB 16. However, strong consistent growth over the period. Very pleased to deliver dividends this year of $0.125 with a fully franked final dividend of $0.07 being declared today. The record date is the 3rd of September and the payment date if the 6th of October. The dividend reinvestment plan will be available for participation in the FY '21 dividend. Turning to Slide 10 and a dissection of revenue. We had solid underlying growth despite ongoing COVID-19 impacts, and the growth was driven by new sites, investment in new equipment and additional contribution from our acquisitions. Our revenue growth of $74.7 million for the year was driven by an additional 4 months contribution from Imaging Queensland of $23 million and a 10-month contribution from Ascot Radiology of $18.3 million, which meant net organic growth was at $33.4 million. Our organic revenue growth in Australia was at 12.2%. When we relate this to the Medicare statistics for the states in which we operate and adjusted for working days, we compared to 14.6%. So we were trailing. We've trailed mostly in the modalities of ultrasound and x-ray, which isn't necessarily unsurprising given our focus on higher-end modalities that drive stronger bottom line results. As we've announced previously, Medicare makes up about 45% of our revenue. So once we use the Medicare rates as an indicator, and we certainly monitor them, we don't necessarily see them as directly comparative to our business model. Our average fee per exam in Australia excluding our reporting contracts increased by 3.3%. This was assisted by the Medicare indexation rate of 1.5% but also by that continuous move to higher-end modalities. Our New Zealand businesses contributed $46.2 million of revenue this year. And organic revenue growth in New Zealand was 12.5%. Turning to Slide 11 and looking at our operating expenditure. We did experience an increase in operating costs, 0.8% as a percentage of revenue, which translates to around $2.7 million of additional costs. This was largely driven by increased employee costs, which is as a result of ongoing radiologist cost pressure, which is present in the industry, and also increased use of paid quarantine or isolation leave in the COVID-19 environment. We have made a decision, and we stand by it to support our staff during this period, and that is causing some additional costs within the profit and loss. We've also seen an increase in consumables, which is partly reflected by the higher-cost consumables for the higher-end modalities that we're moving to but also an increased usage of PP&E due to COVID-19. These ongoing cost pressures, we expect to continue during FY '22 and certainly whilst we're in the risk of the COVID-19 pandemic. Equipment, occupancy and other costs were relatively stable. And we were -- we managed them largely in line with what we would have expected to. Moving to Slide 12 and our capital management. We have a strong balance sheet, net debt of $137.4 million, reducing leverage to 1.4x. And Ian has pointed out, we've got solid finance facilities with $199 million remaining undrawn committed facilities and an additional $105 million in an accordion facility, and it's a 5-year term to February 2026. We have increasing provisions of $5.5 million, and this is largely due to the increased annual leave balance of around $4 million. And this is just due to the difficulty of people wanting to take leave when they can't travel. We had a deferred consideration balance of $23.1 million, which relates to New Zealand, to the original acquisition in New Zealand, but also Ascot, a final payment out of Geelong Medical Imaging that was made in August and the bulk of it relating to our Imaging Queensland acquisition. The bulk of that relates to the earnout A payment of around a $12 million provision. We continue to work through that with the vendor. IDX is very comfortable that the provisions that we have provided for is well within the contractual commitments we have in regards to that earnout A. Our net assets increased by $26.5 million or 11.6%. Turning to Slide 13, our cash flow and cash conversion. Operating EBITDA of $93.5 million delivered a free cash flow of $66.5 million, a conversion rate of 89.1%. AASB 16, as you will be aware, increases the level of your EBITDA. So if we adjusted to a pre-AASB 16, we would have a cash conversion of 104.3%, which I think you'd all agree is very healthy. Turning to Slide 14, our capital expenditure. We spent $23.1 million this year and had depreciation of $19.1 million over our plant and equipment. We had replacement CapEx of $16.8 million and a conservative growth CapEx of $6.3 million. But the growth CapEx that we did spend really did deliver some really strong results and revenue returns in the last half of the year, particularly the MRI that we installed on the spine -- at the spine center on the Gold Coast, which has performed very strongly. We commenced development of the new Benowa site on the Gold Coast fit-out, and Ian will talk about that more later in our outlook statement. I'll now hand -- sorry, I'm going to go through the regulatory update. My apologies. The regulatory environment continues to be quite active, and we are focused on that through our membership as an executive of ADIA and also the newly developed New Zealand Institute of Independent Radiologists. In Australia, MRI licenses, which I know you're always interested in. As of the date of this presentation, there are no further licenses or plans for deregulation of MRI licenses. It being an election year, the changes may occur with certainly an active focus in the last election. And that could well occur again for the upcoming federal election, which needs to occur in the next 12 months or so. In May '21, the budget announced indexation of a rate of 0.9%. It's fairly disappointing given CPI was announced at 3.8% and a Health CPI of 4.8%. So it's a little underweight. Pleasingly, indexation will be applied to MRI items from the 1st of July 2022. They haven't pre -- the indexation has not been applied to MRI previously. However, it's given with one hand and it's taken with the other. The bulk billing incentive on MRI will be reduced to 95% of CMBS from 100% from the 1st of July. So once that becomes indexed, the bulk billing rate will reduce to 95%. So it will take a couple of years of indexation for it to catch up to be on a path. The government has also announced that they expect to deliver $107 million of savings over 4 years on MRI billings by introducing some clear rules on co-claiming of MRI. These rules have not yet been published, and as such, we are unable to measure any potential impact. And we will await for those new results to come out. FDG PET for the early detection and diagnosis of Alzheimer's disease will be introduced onto the CMBS in the 1st of November. And this item descriptor has not been finalized, but then Ian will talk through later on in the presentation about the patient benefits of this really important scheduled item onto the CMBS. In New Zealand, we received annual indexation. We are already performing the FDG PET for the early detection and diagnosis of Alzheimer's at our Ascot clinic, and that has been really exciting for radiologists over there and a great outcome for New Zealand patients. In New Zealand, we have seen evidence of emerging market practices where referrers are acquiring ownership interest in radiology practices and/or equipment. And they start to have the potential to change the competitive dynamics. We do expect that the New Zealand payers and regulators will look at these practices very closely and will undertake the necessary actions to manage referrer conflicts of interest. IDX certainly supports the upholding of the current published guidelines to ensure the quality is maintained, the patient choice is retained and that payers are not subject to overservicing unnecessary imaging, which has been evidenced across the globe where non-arm's length referrals have occurred. We continue to closely monitor those developments, and so we can respond very quickly should we need to. I'll now hand over to Ian to talk through our strategy.

Thank you very much, Anne. IDX operates in 5 key geographic markets, and we are the #1 or the #2 provider in almost every geographic region that we serve. We have 67 clinics across Australia and New Zealand, 27 of these are comprehensive sites. Our comprehensive sites include MRIs, CTs, sometimes PET machines, and they are located near specialist referrers, sometimes in a hospital and sometimes in a stand-alone clinic. We have 31 MRIs across our group, 30 with full Medicare rebatable licenses, 4 with partial Medicare rebatable licenses, and 6 MRIs in New Zealand where obviously Medicare rebatable license is not required. We also have 6 PET scanners across our company. We have 157 employed radiologists. And we have 1,438 employees on the health care frontline. In addition, we have 86 employees in the corporate office that includes both corporate staff and IDXt teleradiology business, giving us a total of 1,524 employees across the business. Moving to Page 19, management's FY '22 strategy. Good medicine is still good business. Our key priorities this year are to increase our focus on brownfields and greenfields, especially given the high multiples that we're seeing being paid in the industry over the last several months; to accelerate the use of digital and AI technology; to execute on our environmental, social and governance strategy; to nurture and develop culture and leadership across our people; and to look at -- to look to expand strategically through continuing to evaluate opportunities through either partnerships and/or acquisitions. COVID-19 and the associated government responses can be expected to continue to have an impact on the group, and we cannot project that accurately at this time. To date, 1H '22 has been affected as a result of the impacts of COVID-19 and the government lockdowns and the border closures across all the geographic areas in which we operate. Up until the 25th of August last week, year-to-date trading is down approximately 5% from expectations. This includes the impacts of the Level 4 lockdowns in New Zealand from the 18th of August. The New Zealand guidelines from the Ministry of Health included that scanning is only to be undertaken during Level 4 to preserve life or limb only. This has resulted in reductions in recent days of trading in New Zealand of up to 75% from expectations, and this is consistent to what we saw during our past experience with the Level 4 lockdowns in New Zealand previously. In financial year '22, we will see ongoing growth investments of approximately $20 million to $24 million in brownfield and greenfield investments and have at least 5 sites expected to be opened across Victoria, New Zealand, Western Australia and Queensland as well as increased investment in digital and AI technologies. We will continue to execute on our clear strategy in line with our vision, purpose and values to deliver the best health outcomes for our patients. I'll now talk you through our capital -- expected capital expenditure during this year, financial year '22. We're looking at the replacement of $20 million -- replacement capital expenditure about $20 million, which is consistent with the growth of our fleet. We're also looking at committing between $20 million and $24 million this year to growth projects, giving us a total of $40 million to $44 million in capital -- expected capital expenditure. Of the $20 million that we're spending for replacement CapEx, we are investing $8 million in a new comprehensive site at Benowa on the Gold Coast. The site is 500 meters or so from the Pindara Private Hospital where we are currently and will include a full MRI license, the latest technology equipment across -- and the latest technology equipment across all DI modalities. We'll continue to work on ongoing lease arrangement post the current lease expiry in the 31st of December at Pindara. We will also be committing $2 million of replacement CapEx in the PET/SPECT -- in the PET and SPECT at Ballarat, introducing the latest technology there. Our expected growth CapEx of $20 million to $24 million this year includes $11 million across 4 new sites in Queensland, Victoria, New Zealand and Western Australia, $1 million investment in a new SPECT and hot lab in New Zealand and $8 million on new technology and equipment upgrades. I'm going to move to the last slide of our investor presentation. And after this slide, we'll give all of you the opportunity to ask Anne and I some questions. The last slide we thought we would share with you is a slide that shows some exciting developments in our industry, developments that will help to build the health care world. And the one development that we're calling out is the introduction of FDG PET scans for the diagnosis of Alzheimer's type dementia, which we're expecting to be included on the 1st of November this year onto the Medicare Benefits Schedule. As I called out earlier, we are already doing some of these scans -- some of these types of scans in New Zealand. Dementia is the second largest cause of death for Australians. We have about 500,000 fellow Australians living with dementia, and the number is expected to increase. And it places an enormous burden on the patients themselves and their families and also on society. What the new FDG PET scan will allow is clinicians to reach a diagnosis earlier and will allow earlier intervention and treatment with beneficial results for everyone, for the patients, their families and society overall. We'll also see a decrease in downstream cost through the management of dementia. And this kind of research is really exciting in terms of its ability to make a difference. It's a very, very large addressable market for us. We have -- IDX has 6 PET scanners across the group, and we're looking forward to being able to utilize these more to provide more and better benefits to our patients. At this point, I'm going to ask Melanie if she can let us know if there's some questions that have come in. And I see the first question, Melanie. I think it's from Chris Cooper at Goldman Sachs.

[Operator Instructions] Your first question comes from Chris Cooper with Goldman Sachs.

The 3.3% increase in fee per exam, so on my numbers, I believe about 1.5 of that is sort of like-for-like reindexation. That would imply roughly 2 percentage points from mix. First of all, is that correct? And secondly, is there any reason why that degree of mix tailwind shouldn't continue as those lines on Slide 5 continue to sort of widen over time?

Yes. Thanks, Chris. You're absolutely right in your analysis. 1.5 of it does come from indexation. And then there's the other -- about 2% or so is from a move to the mix. What we did see during COVID-19 was definitely those higher-end modalities, particularly PETs and oncology patients, continue to be serviced. So whilst there were shutdowns and you had drop-offs of lower-end modalities, we did see an increase in PET. So I think the 3.3% is a very good solid number, but it reflects that during the shutdown, high-end mobilities continue. So I wouldn't -- I would hope that we continue to increase the average fee. I think there are some tailwinds in there though from the COVID-19 trends that we saw at referrer end.

And perhaps a follow-on. I mean I'm just trying to get my head around the regulatory changes on MRI. So I know there's a few moving parts here, but indexation from July next year, the bulk billing incentive will be reduced. And there's also going to be new rules on co-claiming from November. So look, I appreciate you still don't have that type of information, but at this stage, if we net that all out, is your expectation that the net impact is positive or negative for MRI operators from these regulatory changes?

I think for -- overall for MRI, operators for the first few years, particularly as the price will drop by 5% and indexation might be some 1% or 2% depending on what they indexed. So for the first couple of years, there will be a slight drop-off there. For us, that's $300,000 or $400,000. It's not overly material or overly significant. And then -- and that's why if you do bulk bill, there would be probably a number of providers across MRI that are claiming or are charging a small gap as well, which means you don't get that. You're already on reduced CMBS. It's quite complicated, the billing process under Medicare. And as I said, really, with the savings, the new bills that are coming out, it's very difficult for me to say at the moment what impacts that will have, only that the savings will be coming from somewhere across the industry. And depending on what the rules are, that will either impact some that have maybe got more generous billing policies than perhaps others in the industry. As far as IDX is concerned, in that way, I'm very comfortable that our billing policies are quite conservative and that we're in full compliance with Medicare rules. But I really can't give you any more information until the actual guidelines come out from the department.

Okay. Ian, you mentioned the current lockdowns are impacting trading levels and were currently 5% below expectations. It would be pretty helpful for us if we had some sense of what your expectations were at this stage of the year.

Thanks, Chris. We don't share our projections for the year. So while I understand why you're asking the question, it's just -- it's not one that we can answer at this point. What we have called out is that New Zealand is very significantly down. They're up to 75% down. I think it's -- what I can do to be helpful is just refer you to the overall growth in the industry, which over the long term has grown at between 6% or 7%. And those are the kind of projections we use for our budgeting each year. So it does differ region by region based on the growth rate expected in that region, but overall growth in the industry consistently for a long time, excluding COVID impact, has been between that 6% and 7%.

Okay. And I'd just like to squeeze one more in if you don't mind. So just on the OpEx increase, I note your commentary that you expect that to continue through fiscal '22. But I mean it does sound as though it's driven by COVID, and I'm just curious to hear your thoughts. I mean at this stage, are you expecting OpEx to sort of get back down again through the back end of the year and then assuming that sort of COVID conditions can somewhat normalize over that period?

It...

Yes. Sorry.

Go ahead.

I just going to say we'll always focus on costs, and we will try to manage costs to the best of our ability as we've sort of proven over the last 4 or 5 years that we do. As Ian said, it's really difficult for us to say at the moment as to how quickly we'll come out of COVID when people can start to travel, when we'll stop having those enforced guidelines, when we can stop using these high levels of PP&E. It's just if I had a crystal ball, I'd be able to tell you. But at the moment, I can't. All I can say is that, hopefully, on the other side of COVID, that would be an absolute focus to get costs back to where they were tracking.

Your next question comes from Sean Laaman with Morgan Stanley.

Ian or Anne, are you able to describe the percentage of your MRI business which is bulk bill?

We don't share that information, Sean, and not -- and certainly not in -- by modality either. So it is -- yes, it's not something we can share. Overall, what we can say is that Medicare comprise about 45% of our overall revenues and roughly 10% more if you just look at the Australian revenues.

Sure. Sure. And in terms of potential MRI alternatives, any commentary around that? I mean I don't think it's going to be a push point, but just so I have something to discuss with investors.

With regard to MRI alternatives, Sean?

Yes. For example, a specialist refers you into MRI and you say no, the reimbursement [ and so I want ], something else. That's not really a discussion point, is it?

Yes. Usually, it's the other way around. Just because MRIs do provide very, very good information and information, in fact, that is so good that if you look at the medical research over the past several years, MRIs really changed the nature of management of a lot of conditions because the information is so good. So generally, what you see happening is patients are referred for ultrasound or basic x-ray. They get a non-definitive answer from that, and we would sometimes suggest that they come back to get something more definitive like a CT or an MRI. So MRI provides very good information. And we believe in the future of MRI, that the MRI that we called out in Anne's presentation that's doing very well is a nonrebatable MRI. So it does not have a Medicare license. It's at the spine clinic on the Gold Coast. It's in Smith Street as you drive into the Gold Coast. And it has exceeded our expectations, and patients are obviously all privately built on that MRI. And we have several more nonrebatable MRIs in Australia as well, and much of that is paid for either out of pocket by the patient or is compensated by workers' compensation or other health insurance.

Sure. I guess what I'm trying to get to, Ian, is that despite this being in theory a negative change, you can probably offset through copayments where you are already charging copayments. And it probably ends up being awash anyway would be my view.

I think that that's largely correct. Copayments obviously are within our power to change, either up or down. I mean that -- we would price according to the demographics and the demand in the area where we operate. What we do like to do is to keep our MRIs working because that makes sense for serving the patients in the area, utilizing the assets as much as we can and utilizing the license as much as we can. And a lot of what we're doing now is investing in MRI so that we can increase the throughput of the MRI. So we're doing a lot of investment now in post-processing. So allowing patients to get into and out of the MRI quickly and doing some of the processing after the patient is already out of the MRI, which improves our throughput through our MRI machines. So I would not see a reduction in either the volume or the value of our MRIs going forward. And as indicated, over time, we will see that 5% reduction being offset by Medicare now being rebatable every year.

Sure. Sure. And Ian, can ask about the...

Indexable every year. So MRI is now going to be subject to the Medicare index, which this year is only 0.9%. Last year, it was 1.5%. So over time, the 5% will be offset. And the MRI is not subject to indexation.

Got it. Is there any commentary or more detailed commentary you can provide on the Medicare JV and its progress?

Yes, I can. So as we called out back in February, the JV is exciting for us, but it's a long-term initiative. So what we're looking from the JV is for us to be able to provide a joint service together with Medicare group in Australia and New Zealand and the U.K. and Ireland but also over time into other countries as well. But it is going to take time. We have radiologists now in Australia that are doing some reporting for Medicare as part of that JV. But we're working through the initial technology changes and modifications and improvements that need to be made in order to make it run more efficiently. So it's going to take time before we get the demand internationally and we get enough qualified radiologists in Australia and New Zealand and Australian RANZCR board certified radiologists in the U.K. that we can do work, but some competitors are doing it in the space, and there's a lot of opportunity there. It will take time for us to take advantage of it though.

Sure. And just one final one for me, if I may, and just to test this thinking with you now. Granted things have taken a bit of a hit more recently because of COVID, but prior to that, not just in radiology, across many health care services, even in hospitals, for example, there has been sort of really strong growth in services, if you like, across fiscal '21. And it seems to be a bit odd, I guess, in some senses, not just because of aging population, et cetera, et cetera, just because of COVID. And I'm just wondering what you think might be the impact of physician specialists, et cetera, as who might, say, take holidays of 4 to 6 weeks a year, not taking those holidays and being more engaged with their practices. So in theory, that might have either pulled forward demand or doctors are just busier than what they might not have been, which is a little counterintuitive. And so therefore, the growth outlook could be -- not just despite of COVID, but they could be a little bit more challenged once our vaccination rates go up and doctors begin to go to conferences and take holidays again. Just wondering if you have any thoughts around that.

Sean, you're right. It's a double-edged sword. I mean we have the volumes decreasing because of COVID and the lockdown specifically. And then we also have doctors within our group and also of service who don't have as much work as they would ordinarily have and also don't have places to go to use up their leave or their conference leave. So we do have -- during periods when the lockdowns are not in place, we do have doctors' referrers as well as doctors within the group who are fully engaged, and we do see pickup. And we see most of the work that we lose during the lockdown come back after the lockdown is lifted. Not all of it, but a fair amount of the work does come back after the lockdown is lifted. So there is some pent-up demand that we do normally see, but it's hard to say. I mean the new Delta variant also increased as a whole lot -- introduces a whole lot of other variables as well. That rate, we just have not experienced.

Your next question comes from David Stanton with Jefferies.

Just trying to get a handle on this unfortunate New Zealand shutdown. And when we calculate the EBIT impact for per month or full month, it might be a loss of about close to $1 million, $0.9 million to $1 million. Is that a reasonable metric to be thinking about on a per month basis?

I think that's really difficult, David, to calculate, particularly at this point of time. We do understand that there will be some government funds that is available. And also, the key here is how long the lockdowns go for but also what the catch-up revenues are. So we certainly saw during the last lockdown or previous lockdowns in New Zealand, as we did in Australia, that once restrictions were lifted, particularly around elective surgery, et cetera, there was a huge catch-up and surge in scanning. So very difficult for us to be able to quantify. But off the top of my head, $1 million for the company sounds very, very conservative.

Okay. And then in terms of the slower growth that you've identified and reasonably so in ultrasound and x-ray, just big picture, do you plan to address that in terms of lower growth? And then will you be getting more into that space? And if so, how do you address it going forward, please?

David, it's not low growth. It's lower than market growth in those modalities. So ultrasound and x-ray is still very important modalities for us and make up a high proportion of the work we do. It's just that we see fewer referrers referring for ultrasound and x-ray relative to the referrals again for CTs and MRI. Ultrasound and x-ray for the foreseeable will both be important modalities for GPs in particular and for a number of specialty areas, and we will continue to be performing those. That's the bread and butter of our practice. When we look at market share, David, it's the fact that we concentrate on the higher-end modalities like MRI, CT and PET, which means that our revenue is more skewed towards those modalities. And when we see a pent-up demand, for instance, or when patients come back after lockdown, it's demand in those modalities that really drive our revenue.

Understood. And perhaps a question for Anne. The second half cost base, as you pointed out, did go up a touch. I mean is the second half F '21 cost base plus some increases for wage costs representative of what we should be thinking for F '22? That would be a reasonable statement?

Yes, I think it would be, David. At this particular time, I think that would be fair.

Okay. And then finally, I'm interested in understanding this co-claiming with MRI. Are we essentially talking about co-claiming 104? And I guess within the industry, if that's correct, you've mentioned that your billing policies don't include that. But would it be fair to say that some of your smaller competitors are co-claiming 104 and the government is not too happy about it?

Yes. It's a different -- it's co-claiming with 104, but it's also co-claiming multiple MRI scans of region when the patient has one MRI scan. So for example, I understand there's instances where some may be claiming up to 405. So they'll claim a head and neck, spine, abdo, et cetera. So they'll play multiple MRIs of one scan. IDX does not do that. And we don't -- we very, very rarely claim a 104. So that as well where the focus could be, David. But again, that would be a reasonably educated guess, but I can't say until the guidelines come out.

Your next question comes from Thomas Yeo with Barrenjoey.

Just on the M&A environment. Has your opportunity set shifted in the last few months, and that's why you're focusing more brownfields and greenfields? And how are you thinking about just M&A in general over the next 12 to 24 months?

Yes, it's true. As I called out during the last several months, in fact, almost the last year or so, we've seen the multiples being paid for large diagnostic imaging businesses increasing quite considerably. We have been involved in some processes where we did not see value at the kind of multiples that were being asked and offered. So we have intensified our focus towards greenfields and brownfields because we're getting a far better return, particularly from a brownfield. At greenfield, we get good return from, a better return than from M&A even at 8x. But greenfields do take time. So it could take 2 or 3 years for a greenfield to ramp up, whereas with an M&A acquisition, you see the benefits almost immediately, and brownfields take some time in between that. So we have -- you're absolutely right. We have refocused more towards greenfield and brownfield. But we're still very much in the M&A space, both looking at bolt-on acquisitions, and when the opportunity comes up as well, looking at some of the larger acquisitions where we can bring more to that acquisition than what some of the other competitors can.

Yes. Great. And just one more question on your base business. So you mentioned that you are kind of trailing in ultrasound and x-ray. Maybe could you provide a bit more color on the high-end modalities? How are those kind of tracking relative to industry growth?

MRIs and CTs are doing well. Anne, do you want to call out the numbers?

No, no, I won't call out the numbers specifically, Ian, but you're correct.

So we -- over time, we've always concentrated more on MRI, CT and PET just because we provide more services to specialists than we do for GPs. So for instance, specialists make up about 50% of our referrers roughly, whereas normally, you would see GPs comprising the majority of referrers to most of the competitor diagnostic imaging businesses, particularly those that were either co-located with the GP medical centers or close to GP medical centers because of the amount of specialist work we do we -- over time and we'll continue to do relatively more MRI, CTs and PET.

Yes. So is it fair to say that the MRI and CT growth is tracking ahead of industry growth and market?

I would think so. It's difficult to call out that number specifically. But yes, I would think so because we're more concentrated in that area. But you also need to bear in mind that there were a lot more MRI licenses that were given out over the past 2 years or so. And we did receive some but not as many as what proportionately we would have received of those new MRI licenses.

Yes. Sure. And sorry, just a last one. I just noted that your lease is expiring at Pindara Hospital at the end of this year. Just wanted to ask if there's any change in contractual agreement with the hospital.